As the U.S. office real estate sector continues to experience high tenant demand and low vacancy rates, the Canadian market has been experiencing some growth, as well. Overall, office markets throughout North America have remained healthy and show a definite trend toward continued growth for the last half of 2014, and it's expected to carry into 2015.
Avison Young, one of the largest Canadian-owned commercial real estate companies, recently tracked 39 Canadian and U.S. major metropolitan regions to determine the state of the office sector market, starting from the middle of 2013 and ending at mid-2014. Its analysis concluded that the average office vacancy rate in Canada is now at 9.2 percent, which is up from last year's 8 percent. At the same time, the U.S. vacancy rate has declined slightly, narrowing the gap between the two countries.
The outlook for office markets across the U.S. and Canada remains positive, with upward trends occurring especially in downtown areas. Momentum has been increasing in the U.S. with industrial markets, and the increase in tenant demand along with declining vacancy rates have resulted in significant increases in new office construction. Tenant demand for more efficient, modern workplaces has also driven new development considerably.
In addition to desiring workspaces that are more ergonomic and promote more productive work habits, tenants have also asked for workspaces that are positioned in areas where public transit is easily accessible. Due to the growth of office jobs in the United States, investment and leasing sectors have become more confident in building new structures in both the U.S. and in Canada, which has led to rising rents and even higher growth in the office product industry.
Out of the 39 office markets tracked across the continent, 23 had vacancy rates fall over the last year. The report also shows that more than 83 million square feet of land was under construction in Canada over the last year, which is up from the 66 million square feet from the previous year. In Canada, approximately two-thirds of that construction occurred in downtown areas where transit options and mixed environments are more accessible.
As supply and demand imbalances continue to be sorted out and emerging workplaces strive to attract demanding members of the Millennial workforce, North American office real estate markets are well positioned to show continued growth for at least the next couple of years.